Ms. Harsha Devani, J.@mdashThe income tax Appellate Tribunal, Rajkot Bench, Rajkot (the Tribunal), has referred the following questions for the opinion of this court u/s 256(2) of the income tax Act, 1961 (the Act) :
(i) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner of income tax'' (Appeals) allowing the claim of the assessee u/s 80HHA ? (ii) Whether the Appellate Tribunal while allowing the foretasted claim has not erred in placing reliance on the criteria for allowance of deduction u/s 80HH when the claim of the assessee was u/s 80HHA ?
2. The assessment year is 1989-90, and the relevant accounting period is 23-10-1987 to 31-3-1989 (17 months). The income tax Officer, upon going through the statement of income and the audit report filed along with the return of income, observed that the assessee-firm had claimed deduction u/s 80HHA of the Act at the rate of 20 per cent, on the gross total income of Rs. 7,69,942 at Rs. 1,53,988. The income tax Officer took note of the fact that the assessee-firm owned salt works at Kandla which was a part of the greater Gandhidham municipality area and that Kandla was situated within 15 kilometers from the local limits of Gandhidham municipality. He, accordingly, was of the view that the main condition for being eligible to qualify for deduction u/s 80HHA which is: "it begins to manufacture or produce articles after the 30th day of September, 1977 in any rural area" was not fulfilled by the assessee. He, accordingly, held that since the assessee had set up its business within the limits of the greater Gandhidham municipality which was not a rural area, it was not entitled to claim deduction u/s 80HHA of the Act, and disallowed the same. Being aggrieved, the assessee went in appeal to the Commissioner (Appeals). The Commissioner (Appeals) placed reliance upon the audit report u/s 80HH of the Act and held that the claim of the assessee u/s 80HHA was admissible and accordingly directed the income tax Officer to allow the claim. The appeal preferred by the revenue came to be dismissed by the Tribunal by placing reliance upon Notification No. 1953, dated 20-6-1992.
3. Heard Mr. M. R. Bhatt, learned senior advocate, appearing on behalf of the appellant-Revenue and Mr. Kirtikant Thaker, learned advocate, appearing on behalf of the respondent-assessee.
4. In the aforesaid backdrop it may be germane to refer to certain statutory provisions. Section 80HHA of the Act makes provision for "Deduction in respect of the profits and gains from newly established small scale industrial undertakings in certain areas". Sub-section (1) thereof, as it stood at the relevant time, provided that where the gross total income of an assessee includes any profits and gains derived from a small scale industrial undertaking to which the section applies, there shall, in accordance with and subject to the provisions of the section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent, thereof. The section applies to any small-scale industrial undertaking which fulfils the. condition enumerated under sub-section (2) thereof. The condition laid down by virtue of clause (i) of sub-section (2) is that it begins to manufacture or produce articles after 30-9-1977 but before the first day of April, 1990 in any rural area.
In the present case, according to the income tax Officer, the assessee was not entitled to the benefit of section 80HHA as the same was not situated at Kandla which, in turn, was situated within 15 kilometers from the municipal limits of Gandhinagar municipality.
5. Clause (a) of the Explanation to section 80HHA, defines "rural area", reads thus :
(i) an area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or
an area within such distance, not being more than fifteen kilometers from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the stage of development of such area (including the extent of, and scope for urbanization of such area) and other relevant considerations, specify in this behalf by notification in the Official Gazette.
6. The Central Government, in pursuance of sub-clause (ii) of clause (a) of 6 the Explanation to section 80HHA of the Act has, having regard to the stage of development (including the extent of, and scope for urbanization of the area) and other relevant considerations, by a notification in the Official Gazette specified the areas shown in column (3) of the Schedule thereto and falling outside the local limits of the municipality or cantonment board, as the case may be, shown in the corresponding entry in column (2) thereof, for the purposes of the said provisions of the Act. The Schedule under the said notification in so far as the same is relevant for the present purpose reads thus :
|
SI. No. |
Name of municipality or cantonment board |
Details of the area |
|
4 |
Any other municipality or cantonment board |
Areas up to a distance of 8 kilometers in all directions from the municipal limits, or, as the case may be, cantonment limits. |
7. Thus, for the purpose of falling within the ambit of sub-clause (ii) of'' clause (a) of the Explanation to section 80HHA of the Act, the unit of the assessee should be situated within the distance of 8 kilometers from the municipal limits of Gandhidham. In the present case, the income tax Officer has held that the assessed is not eligible for the benefit u/s 80HHA of the Act as it was situated within a distance of fifteen kilometers from the municipal limits of Gandhinagar. However, as noticed earlier, under the notification issued by the Central Government, it is only if the unit of the assessee was situated within a distance of eight kilometers from Gandhidham that the assessee would fall within the ambit of sub-clause (ii) of clause (a) of section 80HHA of the Act. In the circumstances, it is apparent that the income tax Officer has proceeded on an erroneous footing by holding that the assessee is not eligible for the benefit of section 80HHA of the Act as the assesses unit is situated within fifteen kilometers from the municipal limits of Gandhidham. As to whether the case of the assessee falls within the categories laid down under the notification, viz., whether it is situated within a distance of 8 kilometers of the municipal limits of Gandhidham, in the absence of any foundational facts having been laid to indicate that the unit of the assessee is situated within a distance of eight kilometers from the municipal limits of Gandhidham, it is not possible to record any finding to that effect. In the circumstances, it is not possible to state that the Tribunal has committed any legal error so as to warrant interference.
8. In the light of the aforesaid discussion, question No. 1 is answered in the affirmative, that is, against the Revenue and in favor of the assessee. The Appellate Tribunal was right in law and on facts in confirming the order passed by the Commissioner of income tax allowing the claim of the assessee u/s 80HHA.
9. As regards the second question, the same does not arise out of the order of the tribunal inasmuch as the Tribunal has not placed reliance on the criteria for allowance of deduction u/s 80HH of the Act.
10. The reference stands disposed of accordingly.
